Industry groups now need to decide how to manage the HWEN stand-off with the risk of being left outside the tent

Big decisions are now required, both by rural industry groups and Government, following the Climate Change Commission advice on the He Waka Eke Noa proposals (HWEN). The Climate Change Commission, chaired by Rod Carr, has supported some aspects of the HWEN proposals put forward by industry, but has poured cold reality on other aspects.

Beef+Lamb and DairyNZ have responded by suggesting that it is all or nothing. However, that is not going to wash with Government. Once again, the rural industry groups have challenging decisions to make as to whether they are inside the tent or outside the tent.

First, there is a key area of agreement which needs to be celebrated. The Climate Change Commission supports the split-gas approach, with this being fundamental to keeping methane away from the Emission Trading Scheme. Given this support, the Government can now be expected to align firmly with this. But there is still a lot of hard work to be done on sorting out the pricing mechanism for methane.

The big area of disagreement between the Climate Change Commission and HWEN relates to sequestration credits for vegetation types that currently lie outside the Emission Trading Scheme. Industry wants this to be included within HWEN, whereas the Commission says this is not administratively practical.   

The Commission suggests that there are much better ways to acknowledge the ecosystem benefits of some vegetation types that are not ETS-eligible. There are also some improvements for sequestration within the Emission Trading Scheme itself that could be made.  

Before proceeding further, it is important to understand the respective roles of the Government, the Climate Change Commission and HWEN in terms of how we got to the present position and who is responsible for the next steps.

The underlying legislation is the 2019 Climate Change Response (Zero Carbon) Amendment Act which was signed up to by all major parties. The exception to unanimity was ACT Leader David Seymour who, at that time the only ACT member of Parliament, somehow missed the vote while otherwise distracted.

This legislation says that agriculture comes into the Emission Trading Scheme by 1 January 2025 unless acceptable alternative mechanisms can be developed by rural industry partners. That is where HWEN then came into the picture, representing 11 industry groups.

The legislation also says that methane emissions must be reduced by 10 percent by 2030.  

The role of the Climate Change Commission in regard to these specific issues is not to question the 10 percent figure. Rather, the 10 percent figure is a ‘given’ within existing legislation. That is the framework within which they have to operate. Accordingly, any discussion of the 10 percent target is a discussion for another time. However, the Commission has been required to report to Government as to the readiness of the rural sector to have an HWEN system operative by I January 2025.

It is in that context that the Commission has given a tick to farm-based methane charges as being feasible, with this being assessed at the level of individual farms rather than as a processor charge.

However, the Commission has also said that trying to achieve this for sequestration is not possible within the required timeframe. Also, the HWEN sequestration proposals fail on grounds of logic, consistency, and equity.

The Commission has also said that at this stage it does not believe that the industry can be ready for farm-level assessment of nitrous oxide, and that the way forward, at least in the interim, is a charge on synthetic nitrogen applied at the processor level. I will return to that later in this article.

A key point going forward is that it is the Government that now has to make the decisions. They don’t have to accept the Climate Change Commission’s recommendations, but they are required by the legislation to explain any non-acceptance. As for HWEN, its role going forward is by invitation.

The Government is free to ignore HWEN if it wishes. Of course, that might have political ramifications at the ballot box next year, but with HWEN partners doing plenty of squabbling among themselves, that could be assessed as manageable.

So where does that take the debate?

As indicated above, the immediate response in a combined statement from both Beef+Lamb and DairyNZ was that the HWEN proposals are ‘all or nothing’. This reflects that HWEN struggled hard to get internal agreement for their current proposals. It required lots of internal political horse trading between the groups and the generation of much internal heat. The idea of negotiating something new is not appealing to them.

The ‘all or nothing’ approach is also likely to have been the attitude of the Federation of Māori Authorities (FOMA), for whom the sequestration issues are very important. However, I have not seen a public statement from them.

Alas, if these industry groups now hold to the ‘all or nothing’ position then the risk is that it will be ‘nothing’.  Hopefully, a little reflection might lead to a more nuanced position. But at this stage, based on the drum beats I am hearing on the breeze, I am not hopeful.

I am told that at least some of the partners think that HWEN is in danger of self-destructing. I am told that the program office for HWEN remains in place through to the end of September but nothing has been decided beyond that time.

For much of the last six months, I have made my position known, both publicly and privately to some of the HWEN partners, that their sequestration proposals had no chance of being acceptable to the Climate Change Commission. Some of the partners acknowledged this privately but others were not open to that acknowledgement. Oh, what a mess!

I see no chance that the Government will go against the Climate Change Commission on this matter. Essentially, the Climate Change Commission is saying that trying to bring sequestration within HWEN would be shambolic. It would be a very brave Government to act in contravention to that professional advice.

One of the problems is that Beef+Lamb used the promise of sequestration benefits to keep important parts of their own fractious constituency aligned within their own tent. It is now very difficult for them to walk backwards from that. Perhaps they would prefer to go down fighting.

Ironically, the Climate Change Commission has suggested there are much better ways to get acknowledgement of the ecosystem benefits associated with vegetation types that are not currently included in the ETS. But it seems that key industry groups are not hearing.

Key challenges going forward are to make progress on the pricing of the methane levy, and to work hard on farm-level pricing for nitrous oxide. Both of these issues were poorly handled within HWEN, which got distracted from the main game by sequestration issues on which they were never going to win.

In relation to pricing, the starting point has to be acknowledgement that the whole purpose of the levy is to reduce emissions, but that this has to be done in the context of not destroying pastoral agriculture.

The way forward is surely to start by asking the question as to what are the research, development, extension and education needs (RDE&E) to achieve this. And then, what financial resources are required to achieve this? That will determine the necessary levies. 

In discussions with individual partners, I received no disagreement with this approach, but with partners distracted by other issues, it did not come through into the final document.

The other vexing issue is nitrous oxide. Unfortunately, the HWEN document did not lay out with any coherency as to how farm-level assessment might occur, and hence the Climate Change Commission was justified in saying that systems could not be in place as required by 1 January 2025. However, my assessment is that the Climate Change Commission has no fundamental objection to farm-level assessment of nitrous oxide. They just need to be given evidence as to how this could be achieved.

Given the lack of coherency within the industry partners, it seems likely that it will be Government working alone that will now have to make the big decisions, with these decisions required to be made by December 2022.  Given the looming implementation date in legislation of 1 January 2025 as set down in legislation, this cannot be further delayed.

Alas, I am not convinced that Government has the technical expertise within the relevant departments of Ministry of Primary Industries and Ministry for Environment to come up with the right architecture to make everything happen in an acceptable way. It is a very difficult task that they face.

*Keith Woodford was Professor of Farm Management and Agribusiness at Lincoln University for 15 years through to 2015. He is now Managing Director at AgriFood Systems Ltd. He can be contacted at kbwoodford@gmail.com  Previous articles can be found at https://keithwoodford.wordpress.com.